Most Wall Street pros are still skeptical of the recent rally in shares of AMC Entertainment Holdings (AMC 17.99%). Jason Bazinet at Citi (NYSE: C) put out an updated note on the country's largest multiplex operator on Tuesday, sticking to his sell rating and $2 price target.
There's clearly a disconnect between analysts and AMC's buoyant stock chart. Bazinet at $2 seems low, but he's not even at the bottom of the range among notable market mavens. Eric Handler at MKM Partners put out a $1 price target last month, and Rich Greenfield at LightShed Partners turned heads last week with his call that the stock is heading to $0.01.
The pessimism is thick, but reality is painting a different portrait. The stock has soared 74% over the past six trading days after several bullish developments, closing above $14 on Monday. The highest of the seven leading analyst firms with a price goal for the stock is currently at $7 for AMC Entertainment. In other words, even the most upbeat of Wall Street pros sees the stock shedding more than half its value in the near future.
Traders and analysts are watching two different movies
A lot of different stories are screening at a multiplex at the same time, and we're seeing that here. Bulls think that pent-up demand will bring moviegoers back to the local theater, and they're backed by encouraging trends we're seeing in Asia and other markets that are further along on the COVID-19 recovery curve. Bazinet's updated note at Citi points out how AMC has enough liquidity on its hands to make it through the end of this year, but that's also part of the problem. Bazinet is updating his model after a rough fourth quarter and the impact that AMC's capital raising has had on stretching the stock's valuation.
AMC commanded an enterprise value of $10.9 billion at the end of 2019. This was after a decent year at the box office with a lot of prolific blockbusters and no fears of a crushing pandemic on the horizon. We're at $17.4 billion in enterprise value as of Monday's close. There are even more question marks now after most media stocks are rallying on the strength of their digital direct-to-consumer movies. Theatrical distribution windows are being disrupted, and this should weigh on how popular movie theaters are at the other end of this pandemic.
The bullish counter here is that AMC is in better shape than it was before the COVID-19 crisis. There will be a shake-out of weaker multiplex operators, and AMC will be able to gain market share by either scooping up bankrupted competition for pennies on the dollar or just letting the weaker peers falter.
We're also seeing AMC getting back to full strength with the opening of California theaters this week following New York City's restart earlier this month. With vaccination rates improving exponentially, we could see capacity restrictions (and more importantly the reluctance of Hollywood studios to put out new tentpole releases) ease up heading into the peak summer season.
AMC has become the ultimate battleground stock. Each side can afford to at least listen to what the other camp is saying. Bulls convinced that bearish analysts are just in the pockets of hedge funds with their bleak outlooks are missing the point. Wall Street pros have more to gain with a healthy AMC, which would need these firms as underwriters to raise debt and equity to take advantage of the rival rubble. Bears convinced that AMC is going under are missing out on the scenario where the country's largest multiplex operator will gain market share.
AMC has also made the most of the lull to beef up its tech for reserved seating and mobile ordering, as well as introducing screen rentals to give its business model new revenue streams. The bulls may want to heed the valuation concerns, but the bears can't dismiss the real fundamental improvements taking place at AMC.